Obama Budget Pushes Sweeping Change

$3.6 Trillion Plan Would Raise Taxes Sharply on the Affluent, Open Battles on Health, Education; The 'Trickle Up' Agenda

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President Obama, backed by members of his economic team, discusses his proposed 2010 budget in Washington.
UPI/Landov

By

Jonathan Weisman

Updated Feb. 27, 2009 11:59 p.m. ET

WASHINGTON -- President Barack Obama delivered a $3.6 trillion budget blueprint to Congress Thursday that aims to "break from a troubled past," with expanded government activism, tax increases on affluent families and businesses, and spending cuts targeted at those he says profited from "an era of profound irresponsibility."

The budget blueprint for fiscal year 2010 is one of the most ambitious policy prescriptions in decades, a reordering of the federal government to provide national health care, shift the energy economy away from oil and gas, and boost the federal commitment to education.

One war would end, as troops leave Iraq, while another would ramp up in Afghanistan. To fund it all, families earning over $250,000 and a variety of businesses will pay a steep price, but Mr. Obama implored Americans to own up to the mistakes of the past while accepting profound sacrifices.

"We need to be honest with ourselves about what costs are being racked up, because that's how we'll come to grips with the hard choices that lie ahead," Mr. Obama said Thursday morning. "And there are some hard choices that lie ahead."

The president blamed the nation's economic travails on the administration that preceded him and on a nation that lost its bearings. His budget plan projects a federal deficit of $1.75 trillion for 2009, or 12.3% of the gross domestic product, a level not seen since 1942 as the U.S. plunged into World War II.

Budget Breakdown

The budget blueprint estimates a federal deficit of $1.75 trillion for 2009.

"This crisis is neither the result of a normal turn of the business cycle nor an accident of history," the president states in an opening message of the 134-page document. "We arrived at this point as a result of an era of profound irresponsibility that engulfed both private and public institutions from some of our largest companies' executive suites to the seats of power in Washington, D.C."

By 2013, the deficit would drop to $533 billion but begin to climb from there again as the heart of the Baby Boom begins drawing Social Security and Medicare benefits.

The budget's introduction is likely to herald one of the fiercest political fights Washington has seen in years, waged on multiple fronts. Within minutes, Republicans were lambasting a document they called class warfare, designed to mire the nation in recession for years to come. Business lobbyists were girding for battle even before the budget's unveiling. Even Democrats are likely to blanch at cuts to agriculture and other programs that have been tried before &ndash; and have failed repeatedly.

The budget sets aside an additional $250 billion to complete the president's effort to rescue the financial markets and stabilize the banking sector. That would come on top of the $700 billion already allocated by Congress. And it is likely to grow. The budget makes clear that the reserve would be used to leverage the purchase of toxic assets weighing down the banking sector's books, $750 billion in asset purchases overall. That could mean a doubling of the original bailout in the end.

Mr. Obama proposes large increases in education funding, including indexing Pell Grants for higher education to inflation and converting the popular scholarship to an automatic "entitlement" program. High-speed rail would gain a $1 billion-a-year grant program, part of a larger effort to boost infrastructure spending even beyond the funds in his $787 billion stimulus plan.

The Defense Department would see a $20.4 billion boost in 2010, a 4% increase from this year, slowing its growth from the Bush years but securing personnel increases for the Army and Marine Corps. Mr. Obama will request an additional $75.5 billion for the wars in Iraq and Afghanistan for the rest of 2009 and another $130 billion for 2010, as he withdraws most combat troops from Iraq over 19 months but sends many of them to Afghanistan.

In one of the budget's most ambitious proposals, the president plans to cap the emissions of greenhouse gases, forcing polluters to purchase permits for emissions that would be slowly brought down to 14% below 2005 levels by 2020 and 83% below 2005 levels by 2050. The sale of those permits, beginning in 2012, would reap $646 billion through 2019. Of those revenues, $525.7 billion would be devoted to extending Mr. Obama's signature "Making Work Pay" $800 tax credit for working couples. Another $120 billion would go to clean energy technology.

He acknowledged his $630 billion fund for a national health insurance program will not be enough to ensure access to health care for all Americans, but he said it will be a start.

Budget Stepping Stones

See the steps by which the federal budget will be finalized in the coming months.

To finance his proposals, the president has clearly chosen winners and losers -- with the affluent heading the list of losers. In populist tones that reflect an anger he notably avoided on the campaign trail, Mr. Obama wrote, "Prudent investments in education, clean energy, health care, and infrastructure were sacrificed for huge tax cuts for the wealthy and well-connected. In the face of these trade-offs, Washington has ignored the squeeze on middle-class families that is making it harder for them to get ahead&hellip; There's nothing wrong with making money, but there is something wrong when we allow the playing field to be tilted so far in the favor of so few."

In that sense, the budget is payback. As expected, taxes will rise for singles earning $200,000 and couples earning $250,000, beginning in 2011 -- for a total windfall of $656 billion over 10 years. Income tax hikes would raise $339 billion alone. Limits on personal exemptions and itemized deductions would bring in another $180 billion. Higher capital gains rates would bring in $118 billion. The estate tax, scheduled to be repealed next year, would instead be preserved, with the value of estates over $3.5 million -- $7 million for couples -- taxed at 45%.

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Businesses would be hit, too. The budget envisions reaping $210 billion over the next decade by limiting the ability of U.S.-based multinational companies to shield overseas profits from taxation. Another $24 billion would come from hedge fund and private equity managers, whose income would be taxed at income tax rates, not capital gains rates. Oil and gas companies would be hit particularly hard, with the repeal of multiple tax credits and deductions.

The federal government would take over most student lending. Managed care companies would lose their subsidies for offering Medicare plans. Farmers with operating incomes over $500,000 would see their farm subsidies phased out. And cotton storage would no longer be financed by the federal government.

"There are times where you can afford to redecorate your house, and there are times where you need to focus on rebuilding its foundation," Mr. Obama said as he unveiled his plan. "Today we have to focus on foundations."

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